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Author: AmInvest   |   Latest post: Thu, 21 Nov 2019, 9:49 AM

 

Boilermech - Buys land in Indonesia for RM15.7mil

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  • Boilermech Holdings has proposed to acquire three parcels of adjoining land in East Gresik, Indonesia for Rp54bil or RM15.7mil. Including the 10% VAT, the purchase consideration comes up to Rp59.4bil or RM17.2mil. The land measures 30,000 sq metres in total. The purchase consideration translates into a price of Rp1.8mil per sq metre, excluding the VAT.
  • Boilermech would be setting up a manufacturing plant on the acquired land. This would be the group’s first plant in Indonesia. Boilermech would be fabricating boilers for palm oil mills in the plant. We believe that it would take about a year to set up the plant.
  • According to an announcement on Bursa Malaysia, the land is located at a mature industrial area. Also, there is a jetty nearby, which will facilitate sea transportation for the group’s operations.
  • We view this development positively as Boilermech would be able to service its Indonesian clients better. We believe that it would also be easier for Boilermech to bid for more Indonesian contracts.
  • We reckon that there would also be savings in terms of transportation and delivery as currently, some of the equipment and parts are manufactured in Malaysia and then shipped and assembled in Indonesia.
  • We believe that a significant portion of Boilermech’s boiler contracts come from Indonesia. Boilermech is among the top three manufacturers of palm oil boilers in Indonesia.
  • We also believe that Boilermech would not face any issue financing the acquisition of the land in Indonesia. The group’s net cash stood at RM81.2mil as at end-March 2018.
  • We reckon that the purchase consideration for the land in East Gresik is fair. According to the Bursa announcement, recent market transactions valued land around the area at Rp2mil per sq metre.
  • Maintain HOLD on Boilermech with a fair value of RM0.65/share. Our fair value is based on an FY20F PE of 15x.

Source: AmInvest Research - 24 Apr 2019

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